We examine the behavior of the real exchange rates of nine transition economies during the 1990s. We propose an empirical model rationalized on the basis of standard economic models in the tradition of Mundell-Fleming-Dornbusch and Harrod-Balassa-Samuelson, allowing explicitly for real interest...

A large literature suggests that standard exchange rate models cannot outperform a random walk forecast and that the forward rate is not an optimal predictor of the spot rate. However, there is evidence that the term structure of forward premia contains valuable information for forecasting...